When it comes to economics, the year 2022 will be remembered for the inflation that took place as a consequence of Russia’s invasion of Ukraine. In Azerbaijan, it was no different.
According to economist Natig Jafarli, even since the devaluations of 2006, 2022 was the year during which Azerbaijan experienced the highest price increases. The government officially reports an inflation rate of 22%, some independent experts say it may be even higher.
While Jafarli sees the main reason for inflation being world events, he also notes that “monopolies in Azerbaijan and the lack of openness of the market, as well as the incorrect conduct of tax and customs policy also had a negative impact on the situation. Moreover, the presence of certain facts of corruption are factors affecting the price increase in the market.” Salaries and pensions rose by 10-15%, not enough to completely balance out the effect of the inflation.
On the other hand, the increase in energy prices was a positive development for Azerbaijan’s economy, increasing its income, as it is dependent on income from oil and gas. The country’s budget was revised in the middle of the year because oil and gas revenues were higher than expected by the Azerbaijani government.
According to Jafarli, this is “not because the government worked well, but because the year ends with the highest level of oil and gas prices. For example, during the year, the average price of one barrel of Azerbaijani oil was around 100 dollars. Azerbaijan’s gas revenues have also increased significantly.”
The economic memorandum report on Azerbaijan published by the World Bank at the beginning of the year states that dependence on oil and gas will become more acute in the future.
The report says that the development of the non-oil sector in Azerbaijan depends on oil revenues. Therefore, in the future, the effects of the global energy transition on Azerbaijan’s economy will be negative if the country remains largely dependent on oil revenues.